“The Man from the Pru” was a much-loved British advertising campaign. But these days the fortunes of Prudential (LSE: PRU) are driven by business in Asia, which can be delivered by an app as easily as a doorstep representative. The Prudential share price has increased just over 100% in the past year. But I think the company’s strategic focus could help move it higher yet.
Not the old Prudential
The image of the Prudential as an old school British insurer has now fallen far from the reality, in my view. It has been refocusing its business for years. First it spun off M&G. It is currently offloading its US business, Jackson.
That will leave the business mostly focussed on two high-growth regions. The company talks about its African plans, but it is the Asian business that I find more attractive. Asia is home to billions of consumers in in markets like China and Vietnam. Many are rapidly progressing into the middle classes, with more disposable income. That isn’t guaranteed, though: many Asian economies have stuttered from the pandemic. A slow recovery could hurt the Prudential share price.
Digital impact on the Prudential share price
A lot of the life insurance business is unchanged since the nineteenth century when Prudential was founded. A representative meets with a customer, assesses their needs and recommends a policy. Typically a monthly premium will provide insurance.
The consumer needs have remained similar and I expect them to endure. For example, a new parent decides to take out life insurance to protect their family in case an unforeseen accident leaves them without a breadwinner.
But for these straightforward, standardized policies, the cost of an army of field sales agents can reduce profitability. Many digital native consumers would be happy to research and purchase life insurance online, for example through an app. Reducing the sales cost of such policies could help an insurer’s profitability.
Prudential is focused on this approach, with its own Pulse app now helping it grow in fifteen Asian markets. By last month, the app had reached over 20m installations. The company already reckons it is converting new customers, with over 1.5m customers accessing one of its services through Pulse.
I think the basic need for financial products such as life insurance will endure. But if consumer attitudes change – for example, due to falling birthrates – Prudential and other insurers could face a shrinking market.
Double tailwinds
I like the simplicity of the growth story for Prudential in Asia. It can grow in two ways, in my view.
First, by focusing on growing markets like southeast Asia, the company has positioned itself to ride growth in markets without having to help create it. Such growth could be good for the Prudential share price.
Secondly, by increasing the share of business transacted and managed digitally, the company should be able to reduce costs. That could be good for profits. However, competitors will also want to use digital channels, which could lead to downward pricing pressure rather than a simple translation of cost savings into profits.
